Second bank is sued over blight

L.A. city attorney accuses US Bank of being a slumlord and demands that it clean up foreclosed homes.

A neighbor peeks into an unoccupied, foreclosed home owned by US Bank in… (Mel Melcon / Los Angeles…)

For Mary Sanchez, the vacant, foreclosed home across from hers on Abner Street in El Sereno was an assault on the senses and her piece of mind.

Gang members and squatters used it as a stash house. The place stank of dead animals. Mice made constant incursions from across the way onto her property, prompting her to get cats to head them off. Weeds in the yard reached as high as her chest.

"It was embarrassing," she said. "When people would come over I would say, 'Look for the ugly house with all the stuff in the lawn. I live next to that.' "

On Monday, Los Angeles officials accused US Bank of illegally allowing the Abner Street home and many others to deteriorate into slums. The civil allegations found problems in the way US Bank handled 1,500 home foreclosures and cited more than 150 homes that had fallen into disrepair. The city is demanding that the bank clean up vacant properties and improve conditions for families living in others.

The lawsuit marks the second time the city has accused a major bank of being a slumlord, part of an aggressive attempt to deal with the urban decay caused by the housing crash.

Nearly a million California homes have been foreclosed on since the housing crisis began five years ago, displacing hundreds of thousands of homeowners and tenants and wreaking havoc on some neighborhoods.

More than 362,000 California homes were in foreclosure or seriously delinquent as of March 31, and L.A. is one of several cities experimenting with ways to address the problems associated with such properties, including drug dealing and prostitution. A body was found in one vacant home in South L.A.

City officials say they want to hold banks that helped fuel the housing boom responsible for the blight that rippled through the city after those loans went bad. Large financial institutions such as Deutsche Bank, which the city has previously sued, and US Bank serve as trustees for pools of loans that were turned into securities and sold to investors.

Deutsche Bank and US Bank have argued that the blame for neglected, foreclosed homes lies not with them but with loan servicers, who are contracted to manage the properties. The loan servicers are firms -- including many banks -- that collect and monitor loan payments. Homeowners often send their monthly payments directly to those firms.

"Like the city attorney, we are troubled by properties that are not maintained, which have a corrosive impact on neighborhoods and communities," US Bank Senior Vice President Tom Joyce said in a statement. But he said loan servicers are "responsible for the upkeep of homes and properties and for interacting with homeowners and/or tenants."

Joyce added that US Bank has "made multiple requests of the city over the past couple of years to obtain detailed information on properties they considered to be in disrepair in order to immediately identify and work with the responsible servicer to address outstanding issues. Until very recently, the city has refused to provide us with that information."

But the city attorney's office says the bank, as the listed owner of the properties, bears ultimate responsibility to maintain the properties and be aware of problems.

The lawsuit follows an 18-month investigation by the city and accuses US Bank of fostering poor conditions in some neighborhoods that contribute to crime and blight.

The bank was also responsible for illegally evicting some tenants and forcing others to live in dangerous conditions, according to the complaint.

The city is seeking an injunction and potentially millions of dollars in penalties and restitution from the Minneapolis-based financial institution, whose logo crowns the top of the West Coast's tallest building in downtown L.A.

"U.S. Bank National Assn. disregarded virtually every one of its legal duties and responsibilities as owner, resulting in the creation and maintenance of an alarming number of vacant nuisance properties," the complaint alleges. It also said the bank was "repeatedly advised" over the course of years to fix the problems, but "made no efforts

Last year's complaint targeted Deutsche Bank, the fourth-largest bank in the world, for its actions related to more than 2,000 foreclosures in Los Angeles.

Among other problems, officials cited scores of alleged crimes committed at the properties, including possession of drugs for sale and assault with a deadly weapon. Deutsche too insists that the city has "sued the wrong party" and said the responsibility rests with loan servicers.

That suit is still in court.

Though blight and crime associated with foreclosures have been a problem for many cities, experts and city officials said L.A.'s approach has not been adopted widely by other cities.

Stuart Gabriel, the director of the UCLA Ziman Center for Real Estate, said that the city was making an interesting legal argument and predicted that it would be "highly litigated and very contentious."